The HealthCare unit of Bayer AG (BAYRY) recently received the necessary regulatory approval from the Federal Trade Commission to complete its acquisition of Teva Pharmaceutical Industries Limited’s (TEVA) animal health unit in the US.
In September 2012, Bayer announced that in a bid to diversify its business and expand its animal health business, it inked a deal with Teva to buy its animal health unit.
As per the deal, Bayer will be paying $145 million including an upfront payment of $60 million along with a total of $85 million in milestone payments on the successful and timely achievement of manufacturing and sales targets. The deal will also give Bayer access to Teva’s 300-employee manufacturing site at St. Joseph.
The transaction makes sense for both companies. While the move will enable Bayer to boost its companion animal and food animal product portfolios in the US, it will enable Teva to focus on developing, manufacturing and marketing branded and generic drugs globally -- Teva’s primary areas of strength.
The inclusion of Teva’s US animal health unit will not only add reproductive hormones to Bayer’s product portfolio but also provide multiple anti-infective solutions for treating infections in livestock to Bayer’s food animal unit. Following the completion of the deal, Bayer’s companion animal unit will boast of dermatological, pet wellness and nutraceutical offerings.
We note that Bayer has been quite active on the acquisition front lately. In August, the CropScience unit of the company acquired AgraQuest, Inc., formerly a global supplier of innovative biological pest management solutions, for $425 million (approximately €340 million) in addition to milestone payments. The acquisition has boosted Bayer’s fruits and vegetables business while building a strong technology platform based on "green" products.
However, in November 2012, the company announced that it will not go ahead with its proposed acquisition of nutritional supplement company Schiff Nutrition International. Bayer had announced its intention to buy Schiff Nutrition for $1.2 billion in October 2012.
We currently have a Neutral recommendation on both Bayer and Teva. Both stocks carry a Zacks #3 Rank (Hold). However, other pharma stocks such as Novartis AG (NVS) and Novo Nordisk A/S (NVO) carry a Zacks #2 Rank (Buy).
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